Reference no: EM132531447

Question 1. Aurora Electrical Company of Yellowknife ships wind turbines throughout the country. Mr. Beam, the financial manager, has determined that through the establishment of local collection centres around the country, he can speed up the collection of payments by two days. Furthermore, the cash management department of the company's bank has indicated to him that he can defer payments on his accounts by one day without offending suppliers. The bank has a remote disbursement centre in New Brunswick.

a. If Aurora Electrical Company has $1.5 million per day in collections and $0.8 million per day in disbursements, how many dollars will the cash management system free up? (Enter the answer in dollars not in millions.)

b. If Aurora Electrical Company can earn 4 percent per annum on freed-up funds, how much income can be generated? (Enter the answer in dollars not in millions.)

c. If the total cost of the system is $125,000, should it be implemented?

• Yes
• No

Question 2. The current cash management system of Low Ash Cat Foods requires five days to collect its daily receipts of $225,000. Now Bank offers to reduce the collection time by four days for an annual fee of $49,000.

If the opportunity cost of funds is 6 percent, should Low Ash accept the bank's offer?

• Yes
• No

Question 3. Oral Roberts Dental Supplies has annual sales of $5,200,000. Ninety percent are on credit. The firm has $559,000 in accounts receivable.

a. Compute the value of the average collection period. (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to the nearest whole number.)

Question 4. Wontaby Ltd. is extending its credit terms from 30 to 45 days. Sales are expected to increase from $4.7 million to $5.8 million as a result. Wontaby finances short-term assets at the bank at a cost of 10 percent annually. Calculate the additional annual financing cost of this change in credit terms. (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to the nearest whole dollar. Enter answer in whole dollar not in million.)

Question 5. Friendly Home Services expects sales of baskets to be $125,000 this year, an ordering cost of $75.00 per order, and carrying costs of $3.00 per basket. The price of a basket is $25.

a. What is the economic ordering quantity?

b. How many orders will be placed during the year?

c. What will the average inventory be?

d. What is the total cost of ordering and carrying inventory?